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June 08, 2015
Tips for developing HR metrics

Metrics are a simple way to define, measure, and track key performance indicators. Metrics are certainly not unique to the HR profession but, rather, are used in almost every area of business, government, and education. HR metrics are used to measure and track the performance of most companies’ largest and most valuable investment—their human capital. Through a variety of measurements, HR professionals can analyze a company’s strengths and weaknesses in areas such as hiring, compensation, training, and employee retention.

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To increase its value to the organization, HR management needs to make decisions based on data and facts. Decisions related to the allocation of resources, technology purchases, succession planning, hiring and retention, training, employee performance, compensation programs, and outsourcing HR functions can all be based on data compiled through the use of appropriate metrics.

HR should take the lead in identifying where a company's investment in its employees can best be allocated to meet the company's goals and how to hire, develop, and retain the human capital the company needs to stay competitive now and in the future.

Deciding what to measure

Metrics should be tied directly to the organization’s current business issues and, to be effective, should not just report results, but also show a cause-and-effect relationship. A metric should provide a complete story that includes a measure of quantity, quality, time, cost, and customer satisfaction. Each of these items may not be appropriate for every metric, but they are all important measures of performance. In addition, to really understand the story behind the numbers, the company needs to be able to compare these results with a benchmark that might include prior experience, similar statistics from a competitor, or internal goals. Components of a good metric include:

  • Add context to the numbers—measure ROI, cost/benefit ratios, and impact on problems identified by business leaders.
  • Establish goals for continuous improvement—tie metrics directly to the key challenges facing the business and the results that must be achieved.
  • Provide analysis to business leaders—identify trends and how they can impact the business (compare current, recent, and past to an overall average to show trends)
  • Connect people-reporting to the business strategy for total people-business integration as well as establish HR credibility and identify organizational strengths and weaknesses and help prioritize initiatives.

Types of Metrics Available to HR

There is a potentially endless number of metrics available to the HR professional. The key is to pick metrics that focus on key issues and tell the story. It may be that a series of single metrics, when viewed together, tell the story. Below are some of the metrics an HR professional may want to consider for each functional area of human resources. Metrics generally measure one of the following:

  • Increased job performance (e.g., new recruiting program resulted in new employees with first year job performance ratings that are 30 percent higher than under the old program)
  • ROI (e.g., new commission plan resulted in $100 of increased sales for each additional commission dollar paid)
  • Impact of a program on revenue
  • Decreased costs

Below are a few key measurement areas to consider:

  • Recruiting: Time to fill vacancies, cost per hire, voluntary and involuntary turnover of new hires during first year, turnover rate/cost by department and organization, training hours and cost per employee, retention rate by recruiting source,
  • Training: Cost of sales training as a percent of total sales, percent who cite lack of training or advancement as a reason for leaving, identification of key employees and percent who have received training, percent of performance appraisals that include training goals for employees
  • Employee relations: HR staff to employee ratio, number of complaints filled by employees, amount of time taken to resolve internal complaints, breakdown of the types of complaints
  • Compensation programs: Analysis of compensation levels to the marketplace and key competitors, revenue per employee, pretax profit per employee, total compensation as a percent of total expense, benefits expense as a percent of total expense

Communicating metrics

There are any number of ways to share HR metrics with your management team but there are some pretty standard practices and features applicable to any of them. Read on for tips on how to communicate knock your socks off metrics to the team.

Make it clear. Explain, in commonly used business terms, the data source for each metric and how measurements were established. This helps the management team achieve a common understanding of the metrics you’ve conveyed. As much as possible, HR management should try to use formulas, ratios, and language that is commonly used by the organization's other business leaders. For instance, ROI, or return on investment, is universally understood in the business world.

Don’t double dip. Use relevant data that’s available to you but refrain from duplicating data from other departments and/or business units. For example, the team may already have stats on the number of turnovers by department. If that’s the case, show how that number impacts the bottom line by providing a cost of turnover/cost of hire metric.

Keep it simple. A good metric focuses resources on key areas to facilitate improved efficiency, increase profitability, expand capacity, or plan for future needs. Like most good things, though, you can have too many metrics so refrain from creating a deluge of data that overwhelms your audience. Create a HR metrics “dashboard” to share with the team. Give them the salient points without bogging them down with statistical overload.

Start now

Developing HR metrics is often one of those things we tend to shove onto the back burner. Don’t wait until you have the perfect system in place, just do it. Even if your data is not perfect, maybe even sketchy, start using it anyway. Begin with what you have easy access to, even if it’s only one metric like turnover rate, and establish a baseline for the data. You can build on the data over time and you can tweak the presentation all you like later.

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